We all receive services from plumbers, electricians, etc., who are willing to charge us less if we agree to forgo the documentation.

It was recently reported that Finance Minister Yuval Steinitz has promised the
University Center in Ariel NIS 100 million for the next academic year, and this
toward its being recognized as a full-fledged university.

I do not intend
to deal in this article with the question of whether Israel needs an eighth
government-subsidized university, and whether if it does this university should
be outside the Green Line. Since the government is more than likely to get this
allocation of NIS 100m. approved by the Knesset, the only remaining question is
where the money will come from, since Education Minister Gideon Sa’ar has
announced that it will not come from the budget already allocated to the
universities.

The three accepted options are that the sum will be taken
from some other budgetary item, that it will come from increased government tax
revenue, or that it will contribute to increasing the budget
deficit.

However there is another way, and it could be achieved by
utilizing the funds to employ an additional 400 (or more) professional tax and
debt collectors that would increase government revenue by tens of billions of
shekels, which could in turn be used to pay for all sorts of
projects.

How would 400 additional tax and debt collectors achieve this
result? First of all, because Israel has a vast “Black Economy,” estimated at
close to NIS 200 billion per annum (or close to a quarter of Israel’s GDP), at
least part of which could be brought into the reported economy through a more
effective tax collecting regime.

Secondly, as recently reported, unpaid
debts by individuals and authorities to ministries and state agencies for
services rendered are estimated at around NIS 125 billion.

THE BLACK
Economy, or “shadow economy” as it is official referred to by the World Bank, is
that part of the economy that is not reported to the tax authorities, and which
consequently remains untaxed. A Shadow Economy exists in all states, but in
Israel it is especially large. This economy includes illegal activities such as
trafficking in women, the drug trade and illegal gambling, which the state could
not possibly tax without legalizing them.

However, much of the shadow
economy consists of economic activities that are in themselves legal, but are
provided without any documentation such as bills or receipts, and are not
reported to the authorities for tax purposes. We all receive services from
plumbers, electricians, handymen etc., who are willing to charge us less if we
agree to forgo the documentation. How many of us refuse such an offer? In
addition, many businessmen and self-employed professionals submit reports to the
tax authorities, but leave out large chunks of income. This is a cultural
phenomenon as much as an economic one.

However, from time to time we are
informed that the tax authorities have carried out a “raid” on businesses in a
certain geographic area, or trade, and that tens of millions of shekels were
collected.

Certainly the allocation of additional manpower – both tax
collectors and police – would enable a more systematic war against the Shadow
Economy.

AS TO the uncollected debts to government ministries and
agencies, it is admitted that around NIS 60b. of the NIS 125b. are “lost debts”
due to the statute of limitations. But even the remainder is a serious sum,
equal to about 18 percent of the 2012 budget.

What is this incredible sum
made up of? The Marker cited several examples, including NIS 2.9b. in tax
arrears that the tax authorities have failed to collect in the first half of
2012. NIS 1.8b. is the debt of the health funds to the Health Ministry, NIS
1.1b. is the debts of individuals and public bodies to the Water Authority, and
NIS 1b.

is fines imposed by the police for traffic violations and fines
imposed by the courts that have not been collected.

Once again, the
allocation of additional manpower – in this case debt collectors and police –
could help reduce this debt significantly.

If what has to be done is so
obvious, why isn’t anything being done? Though there are certainly technical
difficulties involved, the main reason is lack of determination.

While we
lack leaders whose goal is simply to introduce improvements and greater
efficiency into the system for their own sake, the main goal of most of our
leaders is to get reelected.

Thus, promising the University Center in
Ariel NIS 100m. is not only much simpler than tackling the shadow economy and
uncollected debts, it has greater chances of gaining votes for the Likud than
does taking actions that, while greatly improving the situation of the Treasury,
would come at the expense of millions of people who benefit from the current
situation.

So don’t hold your breaths.

The writer teaches at the
Max Stern Yezreel Valley College and was a Knesset employee for many years.

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